Will the Trains Keep on Running?

This is a partial transcript of Special Report with Brit Hume, June 25, that has been edited for clarity. Click here to order the complete transcript.

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BRIT HUME, HOST: So, what hope is there that Amtrak can ever be weaned off the government subsidies that have sustained it for so long and become financial sound on its own — the company, I mean — and should it?  According to Edward Hudgins, adjunct scholar the libertarian Cato Institute, the answers are no it can't, and yes it should. He joins me now. Welcome to you, sir. Good to have you.

ED HUDGINS, ADJUNCT SCHOLAR, CATO INSTITUTE: Thank you.

HUME: I want to note also that you are the Washington director of the Objectivist Center as well as your post at Cato. Tell me, first of all, why — Amtrak was supposed to be one of these streamlined, semiprivate companies operating with government help but able to stand on its own. Why didn't it work?

HUDGINS: The bottom line is, number one, there are certain problems endemic to government, because there are no private owners. There is no incentive to keep costs down and to look for more profitable places to put your money and your investments.

Number two, Amtrak is politicized because it is government owned. In other words, a businessperson would look at it and say certain routes make absolutely no sense because they carry very few people and they lose a ton of money, whereas the northeast corridor carries a lot of people. So, there is where we should put our assets. However, if a politician from a certain state happens to want to keep that stop in their state, well, that's what happens.

In fact, what is interesting is that five years ago Congress mandated that Amtrak become self-sufficient by the end of 2002 or it would have to come up with its own liquidation plan. And the Amtrak Reform Council that was keeping an eye on it would have to come up with a reform plan.

Late last year, members of Congress blocked Amtrak from doing a liquidation study of itself that would have brought out all the information about their phony accounting, about all the problems. And maybe we would have dealt with this issue a few months ago.

HUME: So, in other words, Congress acted in such a way as to make impossible what it had mandated be done.

HUDGINS: Exactly. Actually, a couple of members in particular, Joe Biden and Fritz Hollings, blocked Amtrak from spending any money on doing that kind of a study.

HUME: Now, let's assume, for example, that this did go forward into kind of an insolvency situation and there was a liquidation. Would that mean the end of Amtrak service necessarily?

HUDGINS: No. When you liquidate, you don't necessarily — you don't take the trains and dump them in the ocean, OK? There were plenty of liquidations, by the way, in the 19th century when rail was the most prevalent form of transportation. And they usually went very smoothly.  And assets were transferred. And trains usually continued to run.

We could keep the trains running temporarily, especially in the northeast corridor, put Amtrak under a trustee, a bankruptcy court, and basically sort things out and sell it off to private buyers who are interested in buying Amtrak, especially the northeast corridor.

HUME: One presumes that the resistance to that would come from the parts of the country where service is still helpful, but it doesn't make money.

HUDGINS: That's where you would assume it would come from because, remember, in the year 2000, Americans took 665 million trips by plane.  They took 22.5 million trips by Amtrak. Twice as many people in America took trips by private plans. In other words, in the transportation mix, Amtrak is something like three-tenths of one percent of the country's transportation.

But if you have a stop in your town, even if very few people use it, you want to keep it. But at a cost of, what, $25 billion is what the federal government — i.e. the taxpayers — have put into Amtrak over the last three decades with the promise of, yes, next year, honest, we're going to be operationally self-sufficient. And they never are.

HUME: Now, let's talk about the immediate future here. There is $205 million said to be needed. If that money is not forthcoming, what, in your view, literally will happen?

HUDGINS: Well, I don't think it necessarily has to shut down, first of all. I think they could do some cutting and some playing around that would keep it open, or, again, put it under liquidation. That's what happens when a business declares bankruptcy. It gets protection

HUME: All right, but what do you think will happen?

HUDGINS: I think what's going to happen is the administration is going to give in and give over some money. The administration is talking about making some reforms that are kind of a minor step in the right direction. But given the fact that Amtrak has just shown time and again that it can't do the job, it's too little, too late.

Remember, this is an Enron-Arthur Andersen situation. Amtrak has disguised a lot of information about itself, hidden a lot of stuff on its books, et cetera. The new president, Mr. Gunn, to give him credit, looked at the books himself over the last two months and said, "My gosh, this thing is in an even worse mess than we gathered."

You can't let the same management, the same board of directors that have mismanaged this thing for so long, continue to do so.

HUME: Mr. Hudgins, thank you very much. It's a pleasure to have you.

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